Better still is to just state it plainly and make the focused conclusion that the plumber is liable for the errors of the electrician when they’re both employed by the same firm.

The issue is identical to the way law and accounting firms used to make all partners liable for the actions of all other partners prior to the formation of Limited Partnership firms. Under the LP designation each partner is not liable for the actions of his partners and most law and accounting firms are now taking up the LP designation. (This is discussed at excellent length in David Cay Johnston’s 2 books “Perfectly Legal” and “Free Lunch” about the failures of our IRS Tax systems.)

So unless AIG is an LP the fixed income derivatives traders are most certainly liable for errors made by the Credit Default Swap traders and vice versa. DeSantis should be paid a zero bonus regardless of any contractual obligation he thinks AIG has to him.

The AIG episode and all the other bank bailouts we taxpayers just suffered are merely the result of the continuous fraud that has been happening against our public treasury for hundreds of years. See any work by Gustavus Myers about such fraud in the 19th century in particular the History of the Great American Fortunes and History of the Supreme Court. Follow this with the Iraq For Sale.com movie and website and after that with these 2008 bailouts and you’ll see the same fraud from the 1800s to now unbroken, just by different fraudsters.
Even Ralph Nader, Ron Paul, Dennis Kucinic, et al are not loud enough to get the attention of the media (since the media are owned by the same fraudsters) and hence the American Public to wake up this country from the permanent fraud that raids our treasury continuously.

I have never been to your site until tonight. I must admit that I have never read any of your previous posts on any other subject. I am not sure why you would spend any time on Jake when the bigger issue seems to be how our President, many members of Congress and some attorney generals continue to launch their fury on AIG and others and take no responsibility for their own actions. Wouldn’t your time be better spent holding our government accountable for their part in our financial collapse? Why is the government choosing to spend time on a nuclear attack on bonuses at AIG but don’t seem as concerned about similar bonuses at Fannie and Freddie? I certainly was hoping for serious leadership after the last eight years. Sadly, I see a President and a continued ineffective Congress who are dedicated to finding blame with anyone but themselves. It seems that many of those posting comments are focused on Jake and not on many of the important issues.

I think the final point is the one I’ve been going back and forth with Megan and some of her commenters on. They may be right that I’m being far too skeptical about whether retaining AIG-FP staff is of any productive use, but I think on balance that they’re far too trusting. The way that those intuitions come down may tell us something more profound about ourselves as a whole: that’s what I think I’ll try to write about next.

I suppose the revealing question (not one that I’m asking anyone on this thread to answer, mind you) is: which of the two possibilities would you personally prefer?

The second is, are they fair? I think this is the argument Timothy Burke was addressing. The financial industry as a whole, and AIG in particular, seems to have been a prime cause of a vast destruction of wealth. Those receiving these bonuses have been massively, excessively compensated by comparison to most Americans, who managed not to risk Western civilization. It at least remains to be seen whether Jake DeSantis did in fact create real wealth for AIG; we won’t really know until the disruption in the financial markets plays itself out, and accountants can determine how much of that reported wealth remains. It is in this sense that DeSantis letter was particularly tone-deaf, and the arguments comparing these AIG employees to the UAW members, or the Wisconsin Steel employees that AndyV referenced, are most appealing. Certainly, it is much more fair for the AIG employees to suffer than the UAW retirees.

The third is, are they beneficial? This is the point that Megan McArdle is arguing. Setting aside whether it is fair or just to demand the money back from the AIG employees; will it make the country as a whole better or worse off to do so? The potential effects of doing so are that the employees resign, and need to be replaced; the employees who best know the current positions of AIG are then available to go to competitors knowing how best to trade against AIG and take advantage of AIG’s weakness. It will be difficult if not impossible for AIG to hire replacements to continue unwinding their positions, and AIG is still in position to lose an extremely large amount of money if that cannot be done successfully. Going forward, it will be very difficult and expensive for future financial firms in distress to keep valuable employees. Those of us who have been seeing this financial turmoil coming for years are for the most part of the opinion that the worst is yet to come.

One possibility is that these sharp and highly emotional disagreements reflect
a divergence in the norms and expectations in different segments of society, the cultural consequence of several years of widening income differentials.

*About which I am a bit sceptical. Our modern media culture likes to produce spasms of outrage which are intense but short-lived, and which nearly always turn out to have much less significant consequences than people predict at the time. It will not at all surprise me if the AIG bonus controversy seems very distant a year from now.